The pandemic is pushing households to conserve their cash

CONSUMERS HAVE been unusually parsimonious in lockdown. In America stimulus cheques arrived in the post in April, contributing to a rise in incomes of 10.5%. But Americans squirrelled away a third of their incomes—their highest saving rate ever. People appeared similarly tight-fisted in Britain, where the amount of cash stashed in bank deposits rose by £16.2bn ($20.6bn) in April, compared with an average monthly increase of £5bn in the six months to February.

With shops and restaurants shut down, some consumers probably had little chance to splurge. Others may have tightened the purse strings after a temporary, or even permanent, lay-off. The collapse in demand probably depressed the inflation rate. Headline figures have fallen, largely because of oil-price declines earlier in the year, which have since been passed on to prices at petrol pumps. But even after excluding energy and food, consumer prices have fallen in America and Japan.

The shape of the economic recovery depends on whether the rise in saving lasts. Many consumers will have reason to splash the cash. As lockdowns end, shoppers and diners will venture out again. More people will start to return to work: indeed, according to figures published on June 5th, America’s unemployment rate fell in May. Furloughed workers returning to their workplaces might see less reason to stash money away. Yet some might remain cautious, either because they are still unemployed, or because they worry that the prospects for the economy are still uncertain. That caution could in turn mean that economic activity, and inflation, do not fully return to pre-pandemic days for a while yet.

Editor’s note: a shorter version of this article was published in the Finance section of the print edition under the headline “Prudence in the pandemic”.